Filed 5/10/17 Certified for Publication 5/22/17 (order attached)

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION TWO

SOUTHERN INSURANCE COMPANY,

Petitioner,

v.

WORKERS‟ COMPENSATION APPEALS BOARD, EJ DISTRIBUTION CORPORATION et al.,

Respondents. B278412

(WCAB No. ADJ6865421)

PROCEEDINGS to review a decision of the Workers‟ Compensation Appeals Board. Annulled and remanded with
directions. Stockwell, Harris, Woolverton & Muehl, Alexander G. Abdoulin and George Woolverton for Petitioner. Margaret W. Hosel and Anne Schmitz for Respondent Workers‟ Compensation Appeals Board. Department of Industrial Relati ons, Christopher Jagard, Steven A. McGinty, and Sarosh Qaiser for Respondent Christine Baker, Director of Industrial Relations as Administrator of the Uninsured Employers Benefits Trust Fund. Glauber Berenson and Timothy Chan for Respondent David
Berrios

- S egovia.2 A workers‟ compensation insurance policy was issued based on the express representation that the covered employer‟s employees did not travel out of state. After an employee was injured out of state, the insurer notified the employer that it was

r escinding the policy because of the employer‟s misrepresentation and returned the premium. The issue of insurance coverage went to mandatory arbitration wherein the arbitrator concluded that, as a matter of law, the insurer could not rescind the policy an d that the policy was in effect. The Workers‟ Compensation Appeals Board (appeals board) affirmed the arbitrator‟s decision. Contrary to the arbitrator‟s ruling, a workers‟ compensation insurance policy may be rescinded. (Ins. Code, § 650.) A rescissio n is enforced by a civil action for relief based on rescission (Civ. Code, § 1692) or by asserting rescission as a defense. ( Resure, Inc. v. Superior Court (1996) 42 Cal.App.4th 156, 165

- 166 ( Resure ) .) 1 Because the arbitrator and the appeals
board did no t address and determine whether rescission was a meritorious defense to the employee‟s claim, we annul the appeals board‟s decision and remand the case with directions to
hear and determine whether the insurer was entitled to rescin d, and did rescind, the policy.

FACTUAL BACKGROUND Insurance procurement On December 23, 2008, EJ Distribution Corporation (EJ) applied for workers‟ compensation insurance. The application indicated EJ‟s business as “Concession Trucking company moves containers, no whse [ sic ], no loading and unloading, under 50 mil

_____________________________________________ ___________ 1 “ When a contract has been rescinded in whole or in part, any party to the contract may seek relief based upon such rescission by (a) bringing an action . . . or (b) asserting such rescission by way of defense or cross

- complaint. ” (Civ. Code, § 1692.)3

rt.” The application also indicated that EJ‟s employees did not
travel out of state. The online application prepared by EJ‟s insurance agent described EJ‟s operations as “local hauling.” The online application also indicated that EJ‟s employees did not travel out of state and did not have a radius of travel greater
than 200 miles. Workers‟ compensation insurance policy number
WSI0006904

- 01 (hereafter “the policy”) was issued by Southern Insurance Company 2 for an an nual period beginning on January 1, 2009. The subject claim On April 6, 2009, EJ‟s employee, David Berrios

- Segovia (Segovia), injured his back lifting a latch to his truck while on a trip to Tennessee for his employer EJ. Segovia filed a workers‟

compens ation claim on May 13, 2009. On June 12, 2009, Southern‟s attorneys sent a letter to EJ stating that “Southern is rescinding the policy.” The decision to rescind was based on material misrepresentations or the concealment of material facts by EJ in the a pplication for the policy, specifically that its employees did not travel out of state and that its operations did not exceed a radius of travel of 200
miles. The letter noted that Segovia‟s claim showed those representations were not true as Segovia‟s in jury occurred in
Tennessee. The letter also claimed Southern would not have issued the policy had the true facts been known. Southern returned the premiums paid by EJ in the sum of $19,743.03. Southern‟s underwriting file included a document entitled
“P OLICY TERMINATION / CANCELLATION /

_____________________________________________ ___________ 2 The subject injury claim is administered by Markel doing business as FirstComp on behalf of Southern Insurance Company (collectively Southern).4

REINSTATEMENT NOTICE” issued on June 15, 2009. The
document stated:

“ _ X _ Termination/Cancellation/Nonrenewal The coverage provided by the policy number shown above is being

__ __ nonrenewed or __X__ terminated/canceled , __X__ flat,

__ __ pro rat a , or

__

__ short rate, effective 1/01/2009 12:01 a.m. standard time at the insured‟s mailing address for the following reason(s): Substantial change in risk or Increase in Hazard

. Flat Cancel.”

In light of Southern‟s position that the policy was rescinded leaving EJ uninsured, the Uninsured Employers Benefits Trust Fund (UEBTF) was joined as a defendant in Segovia‟s workers‟ compensation claim.

PROCEDURAL HISTORY
The arbitration The matter was submitted to mandatory arbitrati on as a dispute involving insurance coverage pursuant to Labor Code section 5275, subdivision (a)(1). 3
Southern called an underwriter as a witness who testified that Southern never insured long

- haul trucking in its business
division. In addition, the und erwriter testified that, had
Southern known that EJ traveled outside of 200 miles or out of state, Southern would not have issued the policy. The underwriter, however, confirmed that the policy itself, in fact all workers‟ compensation policies, did not c ontain an exclusion
based on location. Southern also called as a witness a special investigator working for the insurer who testified that EJ exceeded the

_____________________________________________ ___________ 3 “(a) Disputes involving the following issues shall be submitted for arbitration: [¶] (1) Insurance coverage.” (Lab. Code, § 5275, subd. (a)(1).)5

200

- mile radius and that operations extending beyond the 200

- mile radius were not a recent developme nt, but was something that had been done in the past. Prior to January of 2009, EJ engaged in trucking operations outside of the state of California with employees traveling to various states, such as Utah and
Tennessee. The investigator testified that n otes of a conversation with EJ by prior investigators confirmed that EJ engaged in out

of

- state operations before the inception of the policy on January 1, 2009. However, the investigator did not have firsthand knowledge of EJ‟s operations at the time EJ filled out the application. The investigator stated that he did not uncover anything specific in his investigation as to EJ‟s operations at the time the application was submitted. The rulings of the arbitrator and appeals board
The arbitrator found: The re was “no retroactive rescission” of the policy; Segovia‟s claim for his April 6, 2009 injury was covered by the policy; and the policy was prospectively cancelled
under Insurance Code section 676.8 , subdivision (b)(5) 4 as of June 15, 2009
, and not before

. The arbitrator dismissed UEBTF as a
defendant in the matter. The arbitrator gave three reasons for his ruling that there
was “no retroact ive rescission” of the policy. First, the arbitrator found that the “only remedy” for Southern upon discovering mi srepresentation of out

- of

- state operations was cancellation of the policy pursuant to subdivision

_____________________________________________ ___________ 4 “(b) After a policy is in effect, no notice of cancellation shall be effective unless it complies with the notice requirements of this section and is based upon the occurrence, after the e ffective date of the policy, of one or more of the following: [¶] . . .[¶] (5) Material misrepresentation by the policyholder or its agent.” (Ins. Code, § 676.8, subd. (b)(5).) Further statutory references are to the Insurance Code unless indicated othe rwise.6

(b)(5) of section 676.8. 5 The arbitrator ruled that there “is nothing in Insurance Code Section [ 67 6.8] that permits a workers‟ compensation insurer to retro actively rescind a policy that has been incepted from day one.” The arbitrator found that Southern did not comply with section 676.8 “when it unilaterally retroactively rescinded the policy to the inception date of the policy.” Second, the arbitrator rul ed that there is “no mechanism in place in California for a workers‟ compensation insurer to unilaterally retroactively rescind a policy especially if a claim is pending under that policy.” Not entirely excluding rescission of a workers‟ compensation poli cy, the arbitrator explained the insurer cannot “retroactively rescind a workers‟ compensation policy without authorization from a judge in Superior Court, a workers‟ compensation judge, or a WCAB arbitrator.” Third, the arbitrator was concerned over leav ing the injured employee without coverage by what the arbitrator termed a “unilateral, retroactive” rescission of the policy by the insurer. As we explain below, each of the reasons given by the
arbitrator is in error. Southern petitioned for reconsidera tion.

_____________________________________________ ___________ 5 Section 676.8 provides in pertinent part: “(a) This section applies only to policies of workers' compensation insurance. [¶] (b) After a policy is in effect, no notice of cancellation shall be effective unless it complies with the notice requi rements of this section and is based upon the occurrence, after the effective date of the policy, of one or more of the following: [¶] . . . [¶] (5) Material misrepresentation by the policyholder or its agent. [¶]

. . .[¶] (c) A policy shall not be cance led for the conditions specified in paragraph (1), (2), (5), or (6) of subdivision (b) except upon 10 days' written notice to the policyholder by the insurer.”7 The arbitrator recommended that reconsideration be
denied. In addition to quoting from his opinion on the decision, the arbitrator noted that the employer‟s representation that its
truck drivers did not travel outside of the State of California
bec ame false only upon Segovia‟s filing of his claim in May of

2009. The arbitrator was not convinced by the testimony of Southern‟s investigator that EJ had its non

- owner employees drive outside the State of California at the time the policy was applied for in December 2008. Relying on section 359‟s
entitlement to rescind the contract “„ from the time the representation becomes false, ‟ ” the arbitrator found that Southern could only rescind the policy prospectively. The
arbitrator stated that the record did not indicate when EJ began sending its truck drivers out of state, meaning the falsity of the policy application may not have occurred until Segovia‟s injury in Tennessee on April 6, 2009. The appeals board adopted and incorporated the arbitrator‟s report , with the exception of the finding that Southern had waived the jurisdictional issue, and denied
reconsideration.
Petition for a writ of review Defendant Southern petitioned this court for a writ of review on October 20, 2016. The petition presented fou r questions for review:

“ 1. Whether Labor Code [ section ] 5275 provides the Workers Compensation A ppeals B oard with S ubject M atter J urisdiction over rescission of a W orkers C ompensation I nsurance P olicy?

“ 2. Whether R escission of a W orkers C ompensation I nsurance P olicy is P ermitted and if

so, H ow is it E ffectuated?8 “ 3. Do C ancellation S tatutes U nder Insurance Code [ section ] 676.8 C ontrol R escission of a W orkers‟ C ompensation P olicy or P revent R escission of S uch P olicy?

“ 4. Whether the S tatutory S cheme or P ublic P olicy C onsiderations Warrant Preclusion of Contract R escission in W orkers C ompensation C laim s ? ”

We granted the petition for a writ of review on January 10,

2017. We requested that the parties brief issues relating to the rescission of the po licy in this case. 6
DISCUSSION
I. Subject matter jurisdiction
Section 4 of article XIV of the California Constitution vests plenary power in the Legislature to create and enforce a complete system of workers‟ compensation. 7 Based upon this

_____________________________________________ ___________ 6 These issues were: “ 1. Can a workers‟ compensation insurance policy be rescinded under the authority of Insurance Code section 650? [¶] 2. In this case, the applicant filed the claim before the insurer attempted to rescind the contract. Insurance Code section 650 provides that the right to rescind may be exercised at any time previous to the commencement of an action on the contract. Does this provision preclude the insurer‟s attempted rescission? [¶] 3. May the insurer assert rescission as a defense to the applicant‟s claim? (Civ. Code, § 1692, subd. (b).)”

7 “ The Legislature is hereby expressly vested with plenary power, unlimited by any provision of this Constitution, to create, and enforce a complete system of workers‟ compensation, by appropriate legislation . . . to compensate any or all of their workers for injury or disability, a nd their dependents for death incurred or sustained by the said workers in the course of their employment, irrespective of the fault of any party.” (Cal. Const., art. XIV, § 4.)9

constitutiona l mandate, the Legislature enacted section 5300 of the Labor Code, which provides the appeals board with exclusive jurisdiction over actions to enforce against the employer or an insurer any liability for compensation imposed upon the employer. (Lab. Code , § 5300, subd. (b).) “ The appeals board is vested with full power, authority and jurisdiction to try and determine finally all the matters specified in Section 5300 subject only to the review by the courts as specified in this division.” (Lab. Code, § 5 301.) “ The Workers ‟ Compensation Appeals Board

. . . shall exercise all judicial powers vested in it under this code.” (Lab. Code, § 111.) Given these broad powers, and the specific statutory authority providing for arbitration of coverage disputes (see fn. 3), Southern concedes that insurance coverage is within the jurisdiction of the appeals board. Nonetheless, Southern asserts that the appeals board does not have subject matter jurisdiction over a contractual dispute between an insurer and its insure d. However, where, as here, coverage is disputed on the ground that there is no longer a contract of insurance in existence, it is obviously necessary to rule on the defense asserted in order to determine whether there is coverage. “There can be no doubt but that the Commission is vested by constitutional and legislative power to hear and determine every issue raised by the parties to this controversy, including the validity of the policy and the question of fraud alleged in its procurement and that the p arties are not required to invoke either a court of law or equity in the determination of said questions. [Citations.] ” ( General Acc i . Fire & Life Assur ance Corp. v. Industrial Acc i . Com

. (1925) 196 Cal. 179, 190

- 191.) Thus, while Southern is free to li tigate contractual disputes with its insured in a court of law, if Southern disputes workers‟ compensation insurance coverage because it claims there is no contract, it must submit to the10

jurisdiction of the appeals board on the issue of coverage even if

t hat entails a ruling on whether the insurance contract is (or was) in effect.
II. Rescission of a workers’ compensation insurance policy
A . The statutory framework
Section 676.8 is contained in c hapter 11, p art 1, d ivision 1
of the Insurance Code. Cha pter 11 is entitled Cancellation and Failure to Renew Certain Property Insurance. Section 676.8 is specifically limited to workers‟ compensation insurance and it addresses only the cancellation of a policy. It does not even inferentially address rescissi on. Chapter 9 of p art 1, d ivision 1 of the Insurance Code is entitled Rescission. Chapter 9 has only two sections, one of which (section 650) applies to this case. 8 Section 650 provides that “[w]henever a right to rescind a contract of insurance is give n to the insurer by any provision of this part such right may be exercised at any time previous to the commencement of an action on the contract. The rescission shall apply to all insureds under the contract, including additional insureds, unless the

cont ract provides otherwise.” Section 650 applies to workers‟ compensation insurance policies. Addressing section 650, as we must, in its context and within the overall statutory scheme ( People v. Canty (2004) 32 Cal.4th 1266, 1276) we find that the re are th ree reasons for this. First, there is nothing in c hapter 9 or in section 650 specifically that provides that section 650 does not apply to workers‟ compensation insurance policies. By contrast, subdivision (a) of section 675 specifically exempts workers‟

_____________________________________________ ___________ 8 The second section in the rescission chapter applies only to the rescissio n of an automobile liability policy. (§ 651.)11

compensation insurance from the provisions of c hapter 11 which
deal with the cancellation of certain insurance policies. Second, c hapter 9 and section 650 do not single out workers compensation insurance for special treatment. Section 676.8, on
the othe r hand, specifically governs the cancellation of such policies. This is indicative of the intent that the general provisions regarding rescission set forth in section 650 should govern workers‟ compensation insurance policies. Third, there is no provisio n anywhere in the pertinent statutes that can be construed to preclude the rescission of workers‟ compensation insurance policies. UEBTF claims that the right to rescind is protected by
section 675 9 but that workers‟ compensation insurance is specifically excluded from section 675. 10 Based upon this interpretation of section 675, UEBTF contends that a workers‟ compensation insurance policy cannot be rescinded. The premise of this argument, however, is in error since rescission is provided
for in c hapter 9 , not c hapter 3, and section 675 makes no mention
of c hapter 9. UEBTF also contends that rescission is precluded because section 676.8 does not provide for protection of the right to rescind a workers‟ compensation insurance policy. However,

_____________________________________________ ___________ 9 “ This chapter shall not be construed so as to modify or negate any of the provisions of Chapter 3 (commencing with Section 330) of Part 1 of Division 1, nor to destroy any rights or remedies therein provide d.” (§ 675, subd. (b).) Chapter 3 deals with concealment and recognizes the right to rescind a policy upon a showing of concealment. (§ 331.)

10 Subdivision (a) of section 675 excludes workers‟ compensation insurance from the provisions of chapter 11.12

section 676. 8 deals with cancellation only and is in a chapt er that governs cancellation , not rescission

. The somewhat peculiar limitation of rescission to the period prior to the filing of an action on the insurance contract in section 650, is explained by the fact that the former equitable suit for rescission, now abolished, could not be brought if there was an adequate remedy at law. The adequate remedy at law was an action on the insurance contract. That is, if the policy holder brought a n action on the contract , the carrier could assert rescission as a defense in that action. ( Resur e, supra , 42 Cal.App.4th at pp. 165

- 166.) 11 Thus, section 650 is an echo of the

_____________________________________________ ___________ 11 “ When Insurance Code section 650 was enacted, the distinction between an action on the contract at law and an action for equitable rescission was of great significance because of the artificial separation between law and equity. Equity would
not assum e jurisdiction when the plaintiff had a clear remedy at law. [Citations.] It followed that once an action to enforce a contract was commenced at law, the party holding a right to rescind was expected to raise that as a defense rather than bring
a new act ion in equity. [Citation.] [¶] The rule that equitable rescission would not be permitted where there was an adequate remedy at law, taken together with the rule that an applicant‟s fraud could be raised as a defense to an action on the policy, clarifies what is meant by Insurance Code section 650‟s limitation on the right of an insurer to rescind the policy to the time „previous to the commencement of an action on the contract.‟ The Legislature intended that the insurer be precluded from rescinding once the insured had proceeded with an action to enforce the insurance contract at law. . . . The point was merely to guarantee that resort to equity was not needlessly made where the insurer had ample opportunity to raise the same issues in defense of the ac tion on the policy. As we have indicated in our earlier discussion, California law affords that opportunity to insurers where the insured fires the first shot.” ( Resure, supra

, 42 Cal.App.4th at p. 166.)13

past reality that an equitable suit for rescission could not be brought in the face of a pending actio n at law. As Resure explains, section 650 does not affect the current state of the law which is that rescission can always be asserted as a defense to the action on the contract. (See fn. 1 1 .) UEBTF contends that once a workers‟ compensation claim
has b een filed, section 650 precludes rescission. However, the filing of a workers‟ compensation claim is not the equivalent of an
action on the contract. The function that an “action on the contract” serves in section 650 is a legal remedy that precludes
the filing of an equitable suit for rescission. The action on the contract also serves as an appropriate vehicle for the assert ion of
rescission as a defense. A workers compensation claim is not the equivalent of a remedy at law. For one, a workers‟ compen sation claim is not filed, pursued or adjudicated in a law court making it different
from a legal remedy. We note that the arbitrator appears to have been unfavorably impressed by the fact that Southern‟s rescission was
“unilateral

, ” though rescission is routinely a unilateral act. After the equitable action to have a rescission adjudged was abolished in 1961, “the statutes now deal solely with unilateral rescission by notice and offer to restore the consideration. [Citations.] ” (1 Witkin, Summary of Ca l. Law (10th ed. 2005), Contracts, § 930, pp. 1026

- 1027, original italics, citing inter alia Runyan v. Pacific
Air Indus

. (1970) 2 Cal.3d 304, 312.) There is a difference between effecting a rescission and enforcing a rescission by a civil action. A part y effecting a rescission necessarily does so unilaterally. We turn to this next.14 B . Rescission as a defense
A rescission is effected under Civ il Code section 1691 by giving notice of rescission and restoring, or offering to restore, everything of value received under the contract. 12
Once a contract has been rescinded in accordance with the statutory procedure under Civ il Code section 1691, any party to
the contract may seek legal or equitable relief based upon the rescission. ( Runyan v. Pac

. Air Indus

. (1970) 2 Cal.3d 304, 313

- 314 & Paularena v. Superior Court of San Diego County (1965) 231 Cal.App.2d 906, 913 both citing to 3 Cal. Law Revision Com. Rep. (1961) p. D

- 7.) Civ il Code section 1692 sets forth the
remedies available in an action to enforce a rescission. 13
The arbitrator seemed to conflate the effectuation of a
rescission under Civ il Code section 1691 with an action for relief based on the rescission. In this case, Southern effected a
rescission but did not file an action for relief based on the rescission, as it might have, for declaratory relief, to name one

_____________________________________________ ___________ 12 “ Subject to Section 1693, to effect a rescissi on a party to the contract must, promptly upon discovering the facts which entitle him to rescind if he is free from duress, menace, undue influence or disability and is aware of his right to rescind: [¶] (a) Give notice of rescission to the party as to w hom he rescinds; and [¶] (b) Restore to the other party everything of value which he has received from him under the contract or offer to restore the same upon condition that the other party do likewise, unless the latter is unable or positively refuses to do so.” (Civ. Code, § 1691.)

13 “A claim for damages is not inconsistent with a claim for relief based upon rescission. The aggrieved party shall be awarded complete relief, including restitution of benefits, if any, conferred by him as a result of the transaction and any consequential damages to which he is entitled; but such relief shall not include duplicate or inconsistent items of recovery.” (Civ. Code, § 1692.)15

example. That is, the effectuation of a rescission under Civ il
Code section 1691 is not the equivalent of a judgment in a civil action providing for relief based on a rescission.
South ern also misses the distinction between the
effectuation of a rescission under Civ il Code section 1691 and the enforcement of a rescission when it states that once a party has
done as set forth in section 1691, “the rescission is compl ete.” The thought th at performing the acts set forth in Civ il
Code section 1691 effectively discharged Southern‟s obligations
under the contract is incorrect . A judgment finding that Southern‟s rescission was effective following an action filed to
enforce the rescission unde r Civil Code section 1692, on the other hand, would be the discharge that Southern seeks. The same finding could be entered if Southern asserts rescission as a defense to the workers‟ compensation claim. Of course, such a finding would not be entered unt il the facts were tried and determined in the workers‟ compensation hearing. It should be

un necessary to point out that there must be grounds for the rescission, fraud being one of them (Civ. Code, § 1689, subd. ( b )(1)), and that Southern cannot unilatera lly decide, with binding effect on all the world, whether any of the grounds set
forth in Civ il Code section 1689 apply to this case. The point is that it is possible, as section 1692 itself recognizes, that notwithstanding Southern‟s assertion that it re scinded the contract, the rescission was not effective. 14 The appeals board generally agrees that a workers‟ compensation insurance policy can be rescinded under the

_____________________________________________ ___________ 14 “ If in an action or proceeding a party seeks relief based upon rescission and the c ourt determines that the contract has not been rescinded , the court may grant any party to the action any other relief to which he may be entitled under the circumstances.” (Civ. Code, § 1692, italics added.)16

authority of section 650. However, the appeals board contends, and rightly so, that resci ssion should not be used for the improper purpose of obtaining impermissible modifications to a workers‟ compensation insurance policy. The answer to the appeals board‟s concern is that if
rescission is asserted as a defense to the claim in a workers‟

com pensation proceeding, the appeals board itself can ensure that the rescission is not used as a subterfuge to evade the laws governing workers‟ compensation insurance. There is also the concern over the injured worker who has filed a workers‟ compensation claim but is faced with an insurer who has acted to rescind the policy. The answer here is that the
insurer cannot be certain that the rescission will be enforced and
that the insurer is therefore well advised to avoid drastic decisions about coverage unt il the validity of the rescission has been adjudged.
C . Rescission in this case The arbitrator explicitly ruled that Southern could not rescind the policy. Putting the same point another way, the arbitrator found that Southern‟s attempted rescission wa s legally ineffective. Given this ruling, we assume the arbitrator gave little or no consideration to the facts with which Southern sought to justify its rescission of the policy or to the facts that pointed to a contrary conclusion. Though in the report on the petition for reconsideration the
arbitrator addressed some of the facts pertinent to rescission , t his analysis of the facts did not inform the decision that was made, that as a matter of law, Southern could not rescind the policy. It appears that contrary evidence

, that Southern did effectively, and prospectively, cancel the policy as of June 15, 2009

, based on EJ‟s misrepresentation, was given little attention.17 The gist of the factual views set forth in the report on the petition for reconsiderat ion was that there was no evidence that, as of the time that EJ entered into the policy , EJ was engaged in transportation out of state and beyond 200 miles.
There was

, h owever, evidence from which it can be reasonably inferred that EJ knew when it entered into the policy that representations as to the nature of its transportation business were false. Southern‟s special investigator testified that a prior investigator confirmed that EJ engaged in out

- of

- state operations prior to the inception of the policy on January 1, 2009. Although Southern‟s special investigator did not have personal knowledge of EJ‟s operations at the time EJ completed its insurance application, there were business records referenced by the investigator that tended to show that EJ con ducted out

- of

state operations possibly during the insurance application

p rocess. Regardless, the report on the petition for reconsideration
stated that “[t]here is no doubt that at some point the employer in this case concealed the fact that its employee truck drivers
drive out of the State of California.” It was for this reason that
the conclusion was reached that the policy was cancelled prospectively as of June 15, 2009. Although the appeals board contends that there were no material misrepresentatio ns in this case, this is at odds with the arbitrator‟s view. Given there were misrepresentations, the issue yet to be
decided is whether EJ concealed material facts from Southern when it negotiated and entered into the policy. There is also no
decision o f record on whether the misrepresentation was material since the insurer must prove that the insured concealed or misrepresented a material fact on the insurance application. ( LA Sound USA, Inc. v. St. Paul Fire & Marine Ins. Co. (2007) 156 Cal.App.4th 12 59, 1266.) “Materiality is to be determined not by18

the event, but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due, in forming his estimate of the disadvantages of the proposed contract, or in ma king his inquiries.” (§ 334.)
The conclusion is unavoidable that the issue whether Southern‟s rescission was legally effective remains factually open
and unresolved.
DISPOSITION
The decision of the a ppeals b oard affirming the findings
and award of the a rbitrator is annulled and the matter is
remanded to the a ppeals b oard for further proceedings consistent with this opinion.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

.

__________________________, Acting P. J. CHAVEZ We concur:

_______________

___________, J. HOFFSTADT

__________________________, J. * GOODMAN

________________________________________ ____________________ * Retired Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.Filed 5/22/17
CERTIFIED FOR PUBLICATION

I N THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION TWO

SOUTHERN INSURANCE COMPANY,

Petitioner,

v.

WORKERS‟ COMPENSATION APPEALS BOARD, EJ DISTRIBUTION CORPORATION et al.,

Resp ondents. B278412

(WCAB No. ADJ6865421)

ORDER FOR PUBLICATION

THE COURT:*

The opinion in the above entitled matter filed on May 10, 2017 , was not
certified for publication.

For good cause it now appears that the opinion should be published in
the Official Reports and it is so ordered.

* CHAVEZ, Acting P. J. , HOFFSTADT, J., GOODMAN, J.†

† Retired Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution

.